2. It leads to the contraction of foreign trade and the world’s welfare at large.

3. It encourages bilateral trade but deprives the country from the benefits of multi-lateral trade.

4. It vests extraordinary powers in the hands of government officials and there are chances of corruption.

ADVERTISEMENTS:

5. Exchange control is an instant remedy to check disequilibrium in the balance of payments. But, in the long-run it results in the creation of basic disequilibrium which harms the economy at large.

Nonetheless, exchange control has become an integral part of the national economic policy for many countries.

In so far as the correction of disequilibrium is concerned, it should be noted that exchange control does not basically solve the problem, it only prevents the situation from becoming worse.

Moreover, exchange control is always an inhibiting factor to an expanding world trade. With its adoption the gains from international trade are reduced and channels of trade are distorted.

It also checks the flow of international investments which are very essential for the planned development of world’s economic resources. In normal peace times, therefore, it has hardly anything to commend. This is why International Monetary Fund also has mentioned the removal of exchange controls as one of its major objectives.